Gold jumps as peace deal optimism counters hawkish Fed

Gold rose, supported by the signing of an interim peace deal between the US and Iran, even as the Federal Reserve signaled a rate hike later in the year.

Bullion advanced as much as 1.7% to $4 328 an ounce, erasing the drop in the previous session. US and Iranian officials signed the peace agreement electronically on Wednesday evening but it was unclear if the Strait of Hormuz had yet reopened.

Oil prices fell, with the pact expected to ease a global energy shock that’s spurred inflation and rate hike bets. However, uncertainty remains over how quickly fuel prices can come down and when transits through the strait can return to pre-war levels.

“Lower oil still helps at the margin,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “But the Fed outcome complicates the story and argues for a cautious near-term read on gold even as the medium-term constructive case has not disappeared.”

The Fed kept interest rates unchanged on Wednesday, saying it would deliver price stability, and removed a reference in its statement to additional rate adjustments. Traders are now fully pricing in a tightening of monetary policy by October. Higher interest rates are a headwind for precious metals, which don’t pay interest.

For gold, the expectation of a rate hike was “already baked in” even before the latest Fed decision, Ryan Mckay, senior commodity strategist at TD Securities, said in a note. “The overall tilt remains bearish for the yellow metal,” which suggests it would take a notable shift in the Fed outlook to change the underlying market sentiment in precious metals.

Spot gold rose 1.6% to $4 322.83 an ounce as of 9:21 a.m. Singapore time. Silver gained 2.5% to $69.61, after falling 3% in the previous session. Platinum and palladium climbed. The Bloomberg Dollar Spot Index was down 0.2%, after gaining 0.7% in the previous session.

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